Cardinal virtues and ethics have long standing relationship with each other. They are “Two sides of a coin” and highly dependent on each other for the purposes of effective corporate governance. Accounting ethics is no exception to the cardinal virtues and they are embedded in APES 110, code designed for the accountants and includes guidelines for members in the public practice as well as for members in business. This assignment analyses the application of cardinal virtues in alignment with fundamental principles of APES110 Code of Accounting ethics with relevant examples and discusses the specific sections where cardinal virtues are applied in relation to the examples.
Virtues are those character traits that dispose a person to act ethically
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In short, it is to do right thing complying with the laws and jurisdictions applicable to specific situations. Self-mastery best describes the fundamental principle of Professional Behaviour.
I have taken the Case study of Parmalat in Italy to understand and discuss the problems associated with fall out of the multinational empire in breach of accounting principles and fraud involving the auditors firm Grant Thornton and Deloitte & Touche as well as discusses the sections of APES 110 code of ethics and cardinal virtues applicable to the above situation as per the current accounting norms
Parmalat was giant conglomerate in dairy food industry. Parmalat Group, together, was composed of Parmalat SPA and other off-shore subsidiaries. They contributed to 49 percent of the group’s total assets and 30 percent of the consolidated revenue as per 2003 non-standard audit report submitted by Deloitte & Touche. In December 2003, the company collapsed leaving huge €14 billion holes in its financial statements. The fraud actually came out when they defaulted on the payment of $150million bond payment, despite having large sum of alleged cash of € 4 Billion in Bank of
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1. Members in business Investigation revealed that the accounting division of the company found guilty of creating false accounting records of fictitious sales, overstatement of assets, double billing , recording debts as equity, not recording debts, fabrication of operating subsidiaries sales, and even forming fake €3.95 billion Bank of America’s Account.
These were created to hide accumulating losses that were the result of a series of expensive acquisitions after Parmalat went on a buying spree in the 1990s following a flirtation with bankruptcy and a restructuring of its operations. Many of the purchases were financed by bond issues underwritten by the leading investment banks.
The key sections comprises Section 310 Potential Conflicts and Section 320 Preparation and Reporting of Information, identifies the ethical reasons for flaws in behaviour of professional accountants in the Parmalat
By deliberately falsification of their financial statements, by Martin Grass, Brown and Bergonzi. Among other things like:
As what it came to be as one of the notorious case of fraud in the mid-1980s; the electronic store well known as (Crazy Eddie), its owner Eddie Antar and CFO Sam Antar committed every possible act fraud there is. Just to mention two of which they perpetrated; tax evasion and securities fraud. Basically, the tax evasion was committed for many years, it was not until the company became public in 1984 that their wrong doing near its end. Once Crazy Eddie went public, a new set of rules took place, such as compliance with the Securities Exchange Commission and the scrutiny of its investors. Soon, they both realized that their long committed fraud was nearing its end, when an external audit found the real numbers on the company’s inventory, revenues,
The major groups that were directly affected are investors, employees, and suppliers. Here we should make the distinction between different types of investors. There are two major types of investors: insiders and outside investors. Insiders are the investors who know the information that is not known publicly and may benefit them in some way. Outside investors are the investors who only know publicly known information. In our case, outside investors was the group that lost the most. On the other hand, insiders, notably Mickey Monus and David Shapiro, were the one that gains millions on IPO. The group who suffered was employees of Phar-Mor. After the scandal was revealed, most of the stores were closed to cover up losses. As a result, thousands of employees got fired. Another party that was damaged by the scandal was Coopers&Lybrant, the firm that did the audit for Phar-Mor, lost its reputation as a firm who does an audit with integrity. The secondary effect of the scandal was the overall mistrust among investors. They thought that if a giant retailer can forge its accounting books, why smaller companies wouldn’t do the same. As a result, investors became reluctant in investing into businesses that caused harm to the economy as a whole. The last but not least group that was affected by the scandal is Phar-Mor’s suppliers. Mickey Monus was fiercely fighting with them to make the chipset deals to cover up his losses, sometimes using inappropriate pressure and causing suppliers making unprofitable deals. In additions, Monus forced them to pay fees and sponsor his basketball League using buyer power of his company. In addition, a lot of bills for supplies were unpaid for months by Phar-Mor. Some suppliers said that they hated doing business with Phar-Mor, but had no choice since it had an access to vast amount of customers.
Brooks, Leonard J. Business & Professional Ethics for Directors, Executives, & Accountants. Mason: Thompson South-Western, 2004. p227.
The long SEC complaint alleges the company engaged in numerous fraudulent activities, which included filing material incorrect financial statements for 11 straight quarters between April 1999 and December 2001. Th...
...urvey of ethical behavior in the accounting profession. Journal of Accounting Research, 9 (2), pp. 287-306.
Brooks, L., Dunn, P. (2012) Business & Professional Ethics for Directors, Executives & Accountants. 6th Edition. Thompson South-West.
Seawell, Buie 2010, ‘The Content and Practice of Business Ethics’, Good Business, pp. 2-18, viewed 22 October 2013, .
In 2002, WorldCom’s bankruptcy was the largest in US history; WorldCom admitted that it had falsely booked $3.85 billion in expenses to make the company appear more profitable. Ebber who was CEO of WorldCom created fictitious some more than questionable accounting practices. Thus began the practice of taking an operating expense and reclassifyin...
This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Verschoor, CMA, Curtis C. "Ethics: Do The Right Thing." Strategic Finance (2006). Retrieved on 18 September 2006 .
They were committing fraud by creative accounting, acting illegally when using insider trading and shredding their documents relevant to the investigation. Next, consider the stakeholders. Anyone who owns stock in the company would suffer, along with every employee. Under the values bullet we can assume that they have none. Greed and power got the better of every one of them.
Due to such lack of monitoring, management continued to be unaware of such transactions that continued to impact the company negatively. This provided the Rigas family many opportunities to override controls since the lack of corporate governance enabled the decisions to be made by Rigas family without oversight. For example, the article “Adelphia Officials are Arrested, Charged with ‘Massive’ Fraud” discuses how Timothy Rigas had to limit himself to $1 million a month of compensation that was withdrawn from the company for personal use. All decisions were continuously made by such members of the family, in which case for Adelphia, was the team of management. With the lack of controls creating opportunity, they were free to do what they wished- which is something they took incredible advantage
This essay will talk about the ethical standards and code of conduct in the accounting profession, in particular for CPA Australia, the importance of ethical education for accounting students, the importance for ethical financial reporting and also addresses ways to deal with conflicts that arise from ethical issues in the
The aim of this paper is to provide the framework of the current professional accounting code of ethics. What are the ethics and how we define them? In this report we try to determine the main ethical principles that will establish the right and